Mortgage Nightmare: Who Owns My Loan?

Fayette Vaughn-Lee thought she finally caught a break from her financial woes when her mortgage company agreed to temporarily cut her monthly payments.

The six-month reprieve would give her time to move into her basement, rent out the rest of her house and possibly have enough income to resume making full mortgage payments.

Then last week the phone rang: a new company is now handling her mortgage and they didn't know about the forbearance deal.

"I was speechless," Vaughn-Lee recalls. "I finally got to a point where I could breathe."

What made it more frustrating is that this was the third company that she has dealt with in the five years of her loan.

"My house doesn't mean anything to anybody but me," she said, recapping her experience.

It's a frustration shared by millions of Americans. Countless millions of mortgages once serviced by one company are routinely handed over to another. The only notice that homeowners get is a new name or address on their bill. The mortgage lender doesn't need your permission to do this -- somewhere in all those documents you signed is language that allows such transfers.

It's a problem that's not on the radar screen of Congress, though there has been plenty of talk about more help for homeowners and new financial oversight. But as of now, no major proposal has emerged to make it easier for borrowers to understand and deal with the companies that service their loans, and the firms that actually made the loans.

But for Vaughn-Lee, who has owned her house in Southeast Washington, D.C., for about 10 years, the servicer switchover may be impossible to recover from.

When she remarried five years ago, she refinanced the mortgage and used some of the extra cash to make renovations. That $419,000 loan was with Lime Financial. Then it got taken over by SPS Select Portfolio Servicing and now the torch has been handed to Wealthbridge Mortgage.

After a divorce, her income fell by half and "that's when the bottom fell out of my world."

With the help of the Neighborhood Assistance Corporation of America, a non-profit community advocacy and homeownership organization, Vaughn-Lee was able to get SPS to reduce her monthly payments from $3,200 to $1,285 a month, for six months. Now, with Wealthbridge she is back to square one.

Bruce Marks is CEO of the non-profit that helped Vaughn-Lee. He said her case is very common.

While a new company handling your payments can be frustrating, it can also have dire consequences.

Generally, Marks said, the contract between the actual owner of a mortgage and the company hired to collect payments is the same from servicer to servicer.

But, he noted, "servicers with the same exact wording in the contract with the investors will do very different things."

Some companies are more likely to restructure a loan while others prefer to let a home fall into foreclosure. Generally, such companies are paid a quarter of a percentage point by the investors to collect payments. In the past, that left them a healthy profit margin, Marks said.

"Now that doesn't cover their cost for restructuring mortgages," he said. "The servicer, remember, has no skin in the game. If a property goes through foreclosure, they lose nothing. In some ways, they can make money through the foreclosure process" through additional fees.

"If you have an unaffordable mortgage," he added, "and you are working through it with your existing servicer and it's sold to somebody else then you have to start all over and the other servicer might have another motive and that's to get you out of the house as quick as possible."

But the worst scenario, Marks said, is when the mortgage is sold to a new investor for pennies on the dollar. If somebody only paid $90,000 for a $200,000 mortgage, they would make a nice profit quickly if that house goes into foreclosure and is sold for $120,000. It might not be the best thing for the homeowner or the housing market in the area, but the investor walks away with a 33 percent profit.

"In many cases both the servicing and ownership are sold, often for pennies on the dollar," Marks said. "In those cases, they want you out as soon as possible."

So why isn't anything being done about the constant shuffle of mortgage servicers or these so-called vulture investors who just want a quick profit?

"The fact of the matter is that these investors have bought off the members of Congress. … The Senate is bought and paid for by these banks," Marks said. "They're forcing people into foreclosure because they want the cash."

Sometimes, the re-buying of mortgages can work out for the better.

Take Antonio Obando, a union building painter from Queens, N.Y., whose loan was purchased by PennyMac, run by former Countrywide executives. He said the new company, who bought his loan at a discount, allowed him to get out from under a toxic mortgage and to keep his family home.

Obando said his monthly mortgage payments were increasing $500 a year and had reached $4,800. His new PennyMac mortgage lowered that rate to $2,175, although that still allows PennyMac to pay off its bargain-basement purchase and start turning a profit on the loan in a few years.

"Now I feel like I can make the payments and fix the house," he said. "I can pay off my credit cards. I can sleep at night."